Europaudvalget 2010-11 (1. samling)
EUU Alm.del Bilag 243
Offentligt
Answers to questions from the EP Special Committee on the Financial,Economic and Social Crisis (CRIS)1.Latvia believes that the Europe 2020 Strategy should also focus on the dimension ofeconomic cohesion, including measures aimed at promoting competitiveness of less developedrural areas.It is important for Latvia to ensure that convergence between the developed and lessdeveloped EU regions is promoted at the EU level by supporting and implementing measuresaimed at the following:–Economic cohesion;–Development of infrastructure;–Availability of basic services to residents;–Development of EU internal market.It is also important for Latvia to have EU-level measures and support aimed at improvingthe competitiveness, productivity, efficiency and modernisation of rural enterprises (especiallySMEs), as well as fostering diversification of rural economy and promoting employment in ruralareas. Latvia also points out that in the context of promoting development of the rural areas, it isnecessary to address at the EU level the issue of equal competition for all EU farmers.Effective functioning of the EU single market is an undeniable priority for Latvia. In theperiod between January and October 2010, Latvia’s exports to EU Member States accounted for71% of the total exported goods and 49% of the total exported services.Latvia holds the opinion that drafting and implementing single-market policy at the EU andnational level should focus predominantly on horizontal measures (legislative and otherinstruments) that may facilitate better functioning of the EU single market and a higher degree ofintegration of the 27 Member States’ markets:Simplification of legislation and reduction of the administrative burden;Diminishing and eliminating legislative fragmentation at the national level, especiallywhere differences have a direct impact on cross-border activities (e.g., barriers stemming fromdifferences in consumers’ rights, tax administration systems, technical requirements applied togoods and services by certain EU Member States, etc.). EU regulations, where applicable andpossible, unlike the directive pertaining to single market, in almost all instances provide a legalframework that practically excludes potential fragmentation. In case of such a draft directive, it isimportant for the single market to have in place horizontal measures that provide for completeharmonisation;Strengthening the position of SMEs. Latvia supports activities aimed at improved accessto the capital markets by SMEs;Latvia supports the Commission’s proposal to review the directives pertaining toaccounting standards. Latvia believes that simplification of EU’s and national legislation thatgoverns accounting is one of the main measures that must be implemented in order to reduce theadministrative burden on small enterprises.Latvia supports the proposed VAT strategy that has been included in the Single MarketAct; furthermore, Latvia welcomes harmonisation of VAT rates to the highest possible degree.VAT-related differences between the Member States, differences in rates, exceptions,reservations and special provisions applicable to cross-border transactions – these are the factors1
that have a negative impact on the development of the single market; they also impose anadditional administrative burden and additional costs on entrepreneurs.Strengthening of the digital market. Effective involvement (expansion) of Latvianentrepreneurs in the digital market would put them on equal footing with their Western Europeancounterparts and thus would eliminate Latvia’s so-called geographic disadvantage;Attraction and absorption of funds from the EU Cohesion Fund and other financialinstruments funded from the EU budget (TEN-T, TEN-E, KIP, Marco Polo, ITS, etc.), as well asfrom the national budget is of great importance in developing and strengthening the basicinfrastructure (energy, transport and communications).Latvia supports the initiative to establish an EU patent system as long as it is a wellconsidered and sustainable rather than a hurried solution.It is especially important for Latvia to have an integrated European energy market thatincludes the Baltic energy market in the common European market. Likewise, it is of greatimportance to develop energy technologies and to introduce innovations along with measuresaimed at energy efficiency. BEMIP (Baltic Energy Market Interconnection Plan) is one ofLatvia’s most important priorities, especially with regard to infrastructure. Therefore, we greatlyappreciate the fact that BEMIP is also treated as a priority at the European level.Latvia calls for additional discussions regarding involvement of agricultural enterprises inthe production of energy.Latvia believes that it is important to strengthen the EU’s external dimension, to continuethe process of global trade liberalisation and to strengthen entrepreneurs’ competitiveness inexternal markets in order to facilitate exports.2.This issue is of great importance in terms of the liquidity of state funds. Any changes thatreduce the amount of the EU financing available to Latvia would simultaneously increase theneed for additional financing.In order to estimate the impact of EU’s self-financing mechanism on the total cash-flow inLatvia and the EU, it is necessary to acquire additional and more detailed information about themechanism: What institutions would be responsible for emitting the bonds? Who would belegally responsible for undertaking liabilities? What (if any) would be the impact on the MemberStates’ payments to the EU budget? Who would issue guarantees for the mechanism? Whatwould be its impact on EU financial mechanisms?3.Please note that the possibility and necessity to introduce the aforementioned tax iscurrently being discussed at the EU level. Besides, the European Commission has indicated in itscommunication on taxation of the financial sector that the financial transaction tax would have tobe introduced globally since introduction of the tax only within the EU would prompt certainfinancial market segments to be relocated to other countries that do not have such a tax. Exposureto other risks is also possible.At the same time, we would like to point out that the EC report of 19 October 2009 onreviewing the EU budget mentions the financial transaction tax (the European Commissionproposes to introduce the tax at the international level) as a new potential EU resource. Thefinancial transaction tax as a new type of resource has not been discussed at the EU level;therefore, agreement on this matter has not been reached. It is possible that discussion regarding2
potential new types of EU resources will resume in the summer of 2011, when the EuropeanCommission presents its proposals regarding the multi-annual EU budget after 2013.Taking into account the aforementioned considerations, Latvia does not supportintroduction of the financial transaction tax neither at the Latvian nor EU level.In addition, we would like to point out that as of 1 January 2011, Latvia has introduced thefinancial stability duty, which to a certain extent is a duty on financial transactions.4.Latvia believes that the EU should continue to focus on adhering to the principles ofsolidarity and on instruments whose aim is to equalise the disparities in the revenues of EUMember States. Latvia would also like to emphasise that a higher level of effectiveness in termsof policy implementation can be achieved through purposeful implementation of the CohesionPolicy, which in the future should be focused on addressing the social and economical problemsencountered in less developed regions.Taking into account the differences in social and economic development among various EUMember States and regions, as well as considering the diverse challenges encountered by them indealing with the consequences of the financial and economic crisis, implementation of the Europe2020 Strategy will largely depend on regional/national development strategies that have beendeveloped through collaboration between regional and local partners and that provide economicgrowth incentives adapted to the specifics of territorial development and thus contribute to theimplementation of territorial cohesion.In the context of the EU budget, more attention should be paid to implementing specificpriorities under the Europe 2020 Strategy in the EU Member States and regions that are laggingbehind the rest of the Member States in terms of development and that have limited fiscalpossibilities to finance the substantial structural reforms within the framework of the Europe2020 Strategy.5.On 7 September 2010, the Council endorsed an agreement with the European Parliamenton reforming the EU framework for financial supervision. This reform will establish a new basisfor supervision in Europe and will eliminate deficiencies that were exposed during the financialcrisis. The European Systemic Risk Board, which will provide macro-prudential oversight of thefinancial system, and three other European authorities for supervision – namely, the EuropeanBanking Authority, the European Insurance and Occupational Pensions Authority, and theEuropean Securities and Markets Authority – became operational on 1 January 2011.Latvia supports the legislative initiative of the European Commission which is planned tobe made public in the mid-2011 and which will provide a unified procedure for the preventing,managing and resolving the crisis in the financial sector. Currently, public consultations are heldregarding the technical aspects of the initiative.The Council has also endorsed changes in the manner in which the EU’s Stability andGrowth Pact is implemented in order to allow the European Semester (new cycle of monitoringand coordinating the EU’s economic policy) to be introduced as of 1 January 2011. The EuropeanSemester will improve coordination of the Member States’ economic policies and will help tostrengthen budgetary discipline, macroeconomic stability and growth in line with the EU’s 2020Strategy.On 29 September 2010, the European Commission presented six legislative initiatives. Fourof them are related to fiscal issues and are aimed at strengthening the Stability and Growth Pact;3
the aim of the other two is to ensure a timely identification and prevention of macroeconomicimbalance.In October 2010, the Council decided to establish a permanent mechanism for overcomingthe crisis and thus ensuring financial stability in the euro area. Ministers of the ECOFIN agreedto establish a permanent European Stability Mechanism, which as of 2013 will replace existingmechanisms, such as the European Financial Stability Facility and the European FinancialStabilisation Mechanism. By March 2011, Ministers for Finance and the European Commissionhave to finalise work on the intergovernmental arrangement setting up the future mechanism.Latvia supports the European Stability Mechanism; however, it is essential to have strictregulations for receiving assistance within this framework.6.The planned and partially implemented reform in supervising the financial sectorregulations (Basel III in the banking sector, Solvency II in the insurance sector, establishment ofEuropean financial monitoring institutions and the European Systemic Risk Board, etc.) is broad.However, we believe that instead of increasing the number of areas subject to the reform, it isnecessary to draft high-quality legislation that would also focus on mutual coordination ofmeasures and requirements.Currently, the Resolution of the European Parliament does not envisage mutualcoordination of measures and requirements; for example, it does not allow concurrently todemand stability of the financial sector, especially the banking sector, and to encourageinvestments. If Basel III calls for stricter capital and liquidity regulations, the ability to fundeconomic development will be restricted. Discussions are limited to estimating the restrictiveeffect of the Basel III regulations. The aim to improve the accessibility of financial services to thepoor contradicts the principles of risk management, and the subprime mortgage crisis in theUnited States vividly illustrates the possible consequences of implementing such an approach.Impact assessment should contain the analysis of side effects; for example, stricter regulations forbanks will encourage shadow banking. This effect is only generally addressed in somedocuments, and there are no proposals for solving this problem. Furthermore, there is the risk thaton the macro level, stability will not be ensured because the risk will move from a regulatedsector to an unregulated or less regulated sector.We think that at present greater attention should be paid to protecting consumer interestsand educating consumers regarding financial services.7.The International Monetary Fund (IMF) and organisations of the World Bank Group(WB) are currently in the reform implementation phase; that is, since 2008 these institutions havedrafted initiatives for administrative and quota reform, and after receiving approval from themanagement of these institutions, they are being implemented.The IMF quota and administrative reform is being regarded as a sound basis for IMF tobecome a stronger institution that will promote global financial stability and growth, as well asprovide the IMF with sufficient financial resources. The IMF quota and administrative reform isalso a sound basis for institutional legitimacy and efficiency of the IMF. Recent financial crisesproved that the IMF should even further strengthen its mandate for surveillance (both bilateraland multilateral), and within the framework of consultations set forth in Article IV of theFinancial Sector Assessment Programme it should focus on surveillance in countries that have asystemically important financial sector.4
The World Bank Group voice reform envisages double majority voting by Member States’,an increase in general capital, as well as significant institutional and administrative reforms inorder to ensure that when there is an increased need for WB resources, institutions will be able tofulfil their mandate effectively. In view of the World Bank’s aim to reduce barriers for nationaldevelopment in the post-crisis world and the overall goal of the World Bank to reduce poverty,the new Post-Crisis Strategy, which will be discussed at the spring meeting of the IMF and theWB held in April 2011, defines several strategic spheres for the work of the WB. These goalsinclude discussions on the role of the WB in creating social safety nets in the poorest Asian andAfrican countries, providing food, dealing with infrastructure-related matters, developing theinvestment environment and private sector, as well as issues related to public administration. Theinitiative of the WB aims to strengthen the capacity to offer technical assistance and transferexperience to countries with an average level of income. The WB will focus on strengtheninginternal administration by assessing progress and capacity of the WB, and by continuing toimplement measures for preventing corruption.A significant integral element of the IMF and the WB reforms is the need to strengthentheir coordination and cooperation with international institutions and discussion forums such asG20 and the UN.As to the WB, the interests of the Republic of Latvia are represented in the WB Nordic andBaltic countries group consisting of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania,Norway and Sweden. Within the IMF, our interests are addressed in the IMF Nordic - BalticMonetary and Financial Committee. The cooperation and coordination within the framework ofthe aforementioned groups has been very good because it is based on a high level of economic,political and cultural integration within the region.None of the countries within the group is represented in the G20; however, taking intoaccount the fact that the IMF and the WB take part in the preparation process for the G20summits and meetings at the ministerial level, the group benefits from regular exchange ofinformation about important and relevant issues.
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